NCPA - National Center for Policy Analysis

European Policies Are Likely To Unemploy More People

November 20, 1998

Persistent high unemployment is probably the single most important reason conservative governments throughout Western Europe have fallen, notes economist Gary S. Becker, but unemployment is likely to get worse under the new socialist governments.

Employment is unlikely to expand because the Europeans are unwilling to liberalize their labor markets. In fact, the recently elected German Social Democrats, headed by Gerhard Schroder, have promised to rescind the few labor reforms made in the past few years.

  • Average unemployment rates in the European Union have exceeded 10 percent since the early 1990s, and are still almost 12 percent and 10 percent, respectively, in France and Germany.
  • Even worse, almost a third of those unemployed in France and Germany have been out of work for more than a year, compared with about 10 percent in the United. States.
  • The French Socialists have raised the minimum wage several times, and plan to cut the work week to 35 hours in a work-sharing approach to reduce unemployment.

Studies of past job sharing schemes found that forced reductions in hours per worker tend to reduce employment because they raise the effective cost of labor. By contrast, Britain and the U.S. have lower unemployment because labor markets are freer. And Britain's Tony Blair is the only labor-oriented leader in Europe who publicly recognizes that jobs can be readily created by giving companies appropriate incentives.

Source: Gary S. Becker (Hoover Institution), "Only Labor Reform Will Get Europe Working Again," Business Week, November 23, 1998.


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